Weighted Average Cost of Capital

Weighted Average Cost of Capital

Once the cost of individual components of the capital structure have been computed. weights may be assigned to these costs and a weighted average cost of capital calculated. Its computation requires three steps:

• The computation of weights to be assigned to each type of funds;
• The assigned of costs to various sources of capital ; and
• The calculation of the weighted average of these costs by adding up the products of all types of capital multiplied by their appropriate weights.